Client Alert

The SEC recently adopted rules that permit issuers and other persons to furnish proxy materials to shareholders by posting them on an Internet website and supplying a notice to shareholders regarding the availability of such materials. ¹  The new "notice and access" alternative is intended to allow issuers and other soliciting persons to establish procedures that will promote use of the Internet as a reliable and cost-effective means of making proxy materials available to shareholders. Under the new rules, an issuer may satisfy its obligation under the SEC’s proxy rules to furnish proxy materials to shareholders by posting the materials on a publicly-accessible Internet website (other than the SEC’s EDGAR website) and sending a Notice of Internet Availability of Proxy Materials (the "Notice") to shareholders indicating that the proxy materials are available and explaining how to access those materials.

Compliance with the new rules is permitted for meetings beginning August 10, 2007, and issuers may begin sending Notices to shareholders on or after July 1, 2007. In a companion release², the SEC proposed rules that would require (1) large accelerated filers, not including registered investment companies, to use the notice and access model starting January 1, 2008 and (2) all other issuers to use the model starting January 1, 2009. Comments to this proposal are due by March 30, 2007.

Requirements for Issuer Notice and Access Delivery

The notice and access model provides an alternative means for an issuer to furnish proxy materials ³, other than proxy solicitations relating to business combination transactions, to shareholders. To notify shareholders of the availability of such materials on an Internet website, an issuer relying on the notice and access model must send the Notice to shareholders at least 40 calendar days before the shareholder meeting date. No other materials may accompany the Notice except for (1) any notice of a shareholder meeting required under state corporation law ⁴ and (2) a reply card for requesting a paper or e-mail copy of the proxy materials. The issuer may not include the proxy card with the Notice, but, as explained below, the issuer may send shareholders a proxy card 10 or more calendar days after sending the Notice.

The Notice must include the following information in plain English: 

• A prominent bold-face legend that states:
  "Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on [insert meeting date].  This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.
  • The [proxy statement] [information statement] [annual report to security holders] [is/are] available at [Internet website address].
  • If you want to receive a paper or e-mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed below on or before [Insert a date] to facilitate timely delivery."
  • The date, time and location of the meeting;
  • A clear and impartial description of each matter to be voted upon and the issuer’s recommendations regarding each matter (excluding statements supporting the recommendations);
  • A list of the materials available at the specified website;
  • A toll-free number, an e-mail address and an Internet website address where the shareholder can request a copy of the proxy materials, for all meetings and for the particular meeting for which the Notice relates;
  • Any control/identification numbers that the shareholder needs to access his or her proxy card;
  • Instructions on how to access the proxy card, provided that such instructions do not enable a shareholder to execute a proxy without having access to the proxy statement and annual report; ⁵
  • Information on how to obtain directions to be able to attend the meeting and vote in person; and
  • An optional protective warning to shareholders, advising them that no personal information other than the identification or control number is required to execute a proxy.

The Notice may contain only the information specified by the rules and any other information required by state law, if the issuer chooses to combine the Notice with a state law meeting notice.

The new rules allow an issuer to "household" the Notice. As a result, the issuer may send one copy of the Notice to one or more shareholders residing at the same address, if the issuer satisfies current SEC rules regarding householding. However, the issuer must allow each householded account to execute separate proxies. Alternatively, the issuer may send separate Notices for each householded account in a single envelope.

The Notice constitutes other soliciting material under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and must therefore be filed with the SEC no later than the date on which it is first sent to shareholders.

Proxy Card

As noted above, the issuer is not permitted to furnish the proxy card with the initial Notice for a particular solicitation. The issuer must post the proxy card on the website with the proxy statement and any annual report no later than the time at which the Notice is sent to shareholders so that the documents are available electronically at the time the shareholders receive the Notice. In addition, on that website, the issuer must concurrently provide shareholders with at least one method of executing a proxy vote.⁶

The issuer is permitted to send a proxy card 10 or more calendar days after sending the initial Notice. If the issuer chooses to send a proxy card at that time, it need not be accompanied by the proxy statement and annual report. However, if the issuer does not send a copy of the proxy statement and annual report with the proxy card, the issuer must send a copy of the Notice with the proxy card so that shareholders can access the specified website without referring to the initial Notice.

Website Posting Requirements

All proxy materials to be furnished through the notice and access model, other than additional soliciting materials, must be posted on a publicly available Internet website by the time the issuer sends the Notice to shareholders. These materials must remain on the website and be accessible to shareholders through the conclusion of the related shareholder meeting, at no charge to the shareholder. The website address provided in the Notice must lead shareholders directly to the proxy materials, so that shareholders are not required to browse the website to find the materials. The electronically posted proxy materials must be presented in a format convenient for both printing and viewing online.⁷ In addition, the website must be maintained in a manner that does not infringe on the anonymity of the person accessing the website. Finally, if a shareholder may need additional software to view the document, the website must contain a link to enable the shareholder to obtain the software free of charge.

Requests for Copies of Proxy Materials

Upon receipt of a request from a shareholder for a copy of the proxy statement, annual report or proxy card, the issuer must send a copy (in paper or by e-mail, as requested) of those proxy materials to the shareholder within three business days after receiving the request, even if the request is made after the date of the shareholder meeting to which the materials relate (up to one year after the conclusion of such meeting).

Period of Reliance

An issuer’s decision to follow the notice and access model is effective only with respect to a particular meeting. Each time an issuer elects to rely on the notice and access model for a shareholder meeting, it must comply with all of the requirements under that model, including delivery of the Notice and the 40-day notice period. A shareholder that elects not to request a paper or e-mail copy of the proxy materials for one meeting is not bound by that decision with respect to any other meeting, unless the shareholder makes a single election to receive a paper or e-mail copy of the proxy materials on a continuing basis in the future.

Intermediaries

The new rules permit brokers, banks and similar intermediaries to furnish proxy materials to an issuer’s beneficial owners using the notice and access model, but only if the issuer requests that the intermediary do so. If the issuer does not make that request, an intermediary can continue to rely on any other permitted method of furnishing proxy materials to beneficial owners (such as electronic delivery by affirmative consent). If the issuer requests an intermediary to use the notice and access model, the intermediary must send its own form of Notice to beneficial owners at least 40 calendar days before the date of the shareholder meeting. The intermediary’s form of Notice will generally contain the same information as an issuer" Notice, with certain revisions to reflect the differences between registered holders and beneficial owners. The intermediary may choose whether to direct beneficial owners to the issuer" website or to its own website to access the proxy materials.

The intermediary’s Notice must include instructions on how to access the request for voting instructions. However, such Notice may not include a means enabling the beneficial owner to provide voting instructions (such as a telephone number) without having access to the proxy statement and annual report. Like an issuer, the intermediary cannot include a request for voting instructions with its Notice. However, at the issuer’s request, the intermediary must send a copy of the request for voting instructions to beneficial owners, provided that 10 days have passed since the intermediary’s Notice was first sent. A copy of the intermediary’s Notice, or a copy of the proxy statement, must accompany that request for voting instructions.

If a beneficial owner requests a copy of the proxy materials from the intermediary, the intermediary must in turn request such a copy from the issuer or other soliciting person within three business days of the receipt of the request from the beneficial owner. The intermediary must then forward the materials to the beneficial owner within three days after receipt from the issuer or other person.

Soliciting Persons Other Than the Issuer

Under the new rules, a person soliciting proxies other than an issuer (typically, a shareholder engaged in a proxy contest) may use the notice and access model and may follow the same procedures as the issuer. The SEC anticipates that allowing soliciting persons other than the issuer to use the notice and access model may improve the ability of shareholders to participate meaningfully in the proxy process by reducing the costs of a proxy contest and may increase management’s accountability and responsiveness to shareholders because of increased concern about the possibility of proxy contests. A soliciting person other than the issuer following the notice and access model must send its Notice by the later of (1) 40 calendar days prior to the meeting or (2) 10 calendar days after the issuer first sends out its proxy statement or Notice to shareholders. Such a soliciting person may selectively solicit shareholders under the notice and access model, such as by sending a Notice only to large shareholders or those shareholders who have not requested paper copies of the proxy materials. If the issuer provides a shareholder list to a soliciting person, it must indicate which of the shareholders have permanently requested paper copies of the proxy materials.

Compliance Dates and Proposed Mandatory Compliance

Issuers may not use the notice and access model for meetings before August 10, 2007, and no issuer may send a Notice to shareholders before July 1, 2007. In a separate release, the SEC has proposed that issuers be required to comply with the "universal Internet availability" model, which is substantially similar to the notice and access model under the new voluntary rules. If adopted, the SEC would require large accelerated filers⁸, not including registered investment companies, to comply with the universal Internet availability model on January 1, 2008. Compliance for all other issuers, including registered investment companies, would be required on January 1, 2009.

1 Internet Availability of Proxy Materials, SEC Release No. 34-55146 (January 22, 2007), which can be accessed at http://www.sec.gov/rules/final/2007/34-55146.pdf.
2 Universal Internet Availability of Proxy Materials, SEC Release No. 34-55147 (January 22, 2007), which can be accessed at http://www.sec.gov/rules/proposed/2007/34-55147.pdf.
3 Proxy materials include notices of shareholder meetings, Schedule 14A proxy statements and consent solicitation statements, proxy cards, Schedule 14C information statements, annual reports to shareholders, additional soliciting materials and any amendments to such materials that are required to be furnished to shareholders.

4 The Notice may be combined with the required state law notice, unless prohibited by state law. The new rules are not intended to alter any applicable state law requirement concerning the delivery of any document related to a shareholder meeting or proxy solicitation.
5 The Notice may not contain a telephone number for executing a proxy; however, such a telephone number may be included on a proxy card sent to shareholders 10 or more calendar days after the Notice was sent.

6 For example, the issuer may provide an electronic platform linked to the website where the proxy materials are posted or a telephone number for executing a proxy. Merely providing a means to request a paper proxy card is not sufficient.
7 The materials must be provided in (1) a format substantially identical to the paper version (including all charts, tables and graphics) and (2) a readily searchable format, such as HTML.
8 A large accelerated filer is an issuer that, as of the end of its fiscal year, had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $700 million or more, as measured on the last business day of the issuer’s most recently completed second fiscal quarter; had been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for at period of at least 12 calendar months; had filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act; and was not eligible to use Forms 10-KSB and 10-QSB for its annual and quarterly reports.